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There have recently been some angry grumblings from the
blogosphere about the government wanting to stick its fingers in
the crowdfunding pie. The concern across the internet seems to be
that new regulations will destroy the rapidly-growing
crowdfunding industry that brought us the Pebble Watch and the
Veronica Mars movie.

I am here to paraphrase Mark Twain and assure you that the rumors
of Kickstarter’s death have been greatly exaggerated.

The JOBS Act and the proposed SEC rules have nothing to do with
Kickstarter or any rewards-based crowdfunding site. The SEC rules
only apply to equity crowdfunding, where a company is selling
stock or equity from an online crowdfunding site. In fact,
Kickstarter has already said it will not participate in equity
crowdfunding, and most rewards-based crowdfunding sites will not
do so either, primarily because of the extremely high cost of
compliance.

Under the Jumpstart Our Business Startups Act (The JOBS Act),
anyone who wants to start or grow a business will be allowed to
use an online equity crowdfunding portal to raise up to
$1,000,000 by selling stock in their company.

Those who do not have a million-dollar brokerage account at
Merrill Lynch and could not get in on the Twitter IPO will be
allowed to buy stock in the “next big thing” and be on the ground
floor just like rich, accredited investors can do today. And
those who need $500,000 to start a business but can’t get a bank
to return your phone call will be able to use the JOBS Act to
raise money online by selling part of your company to everyday
folks who want to help you build your business.

The JOBS Act is nine pages long and pretty simple to understand.
The concept was to help the economy recover by getting funding to
small businesses and creating jobs in the process. It was passed
by congress with overwhelming bipartisan support and was signed
into law in April 2012.

In late 2013, the SEC released 585 pages of rules, regulations
and compliance requirements that, by their own calculations,
could cost a new business as much as $30,000 to raise $100,000.
Those of us who deal with securities laws were not surprised that
the SEC was making crowdfunding under the JOBS Act difficult,
expensive and filled with regulatory pitfalls.

For those who are excited about JOBS Act equity crowdfunding
though, don’t be scared off by the apparent high cost and the
seemingly insurmountable compliance issues. As it rolls out,
individuals and businesses will employ creative means of making
the JOBS Act work and filling the $1,000,000-and-under funding
void that was formerly occupied by banks and angel investors.
Broker-dealers scared off by the liability and costs of funding
smaller raises will have new resources from innovative
entrepreneurs that want to see equity crowdfunding work and
become the trillion-dollar industry many predict it will become.

Kickstarter fans can rest assured that these new rules will not
affect the rewards-based crowdfunding phenomenon -- at least for
the moment. We all know that governments will eventually see the
billions of dollars passing tax free through the rewards-based
crowdfunding system and will want a piece of the action. Let’s
all hope that congress manages to stay gridlocked enough that
they never get around to doing so.